Property market update: Sydney, October 2021

But while the city saw an uptick in market activity, dwelling values in the NSW capital continued to slow down from record peaks hit in March.

According to experts, a heady mix of worsening affordability, increasing supply and less fiscal stimulus are beginning to take their toll on property prices. 

Affordability has become one of the hottest topics in Sydney’s property market as a result of this year’s boom, and it’s only getting more pressing. 

According to CoreLogic’s research director Tim Lawless, wage growth has failed to keep pace with the housing boom, locking out home buyers from the market.

“Housing prices continue to outpace wages by a ratio of about 12:1. This is one of the reasons why first home buyers are becoming a progressively smaller component of housing demand.” 

He added that while new listings have increased, home buyers now have fewer fiscal incentives at their disposal to help them with their big property purchases. “New listings have surged by 47 per cent since the recent low in September, and housing-focused stimulus such as HomeBuilder and stamp duty concessions have now expired.” 

Additionally, Mr Lawless noted that the latest move with APRA will also affect price growth. “Combining these factors with the subtle tightening of credit assessments set for November 1, and it’s highly likely the housing market will continue to gradually lose momentum,” the expert said.

As NSW reopens its borders and with an economic rebound on the horizon, analysts are now predicting a shift in market trends leading up to the end of the year. 

For now, let’s see how the city’s property market performed in October 2021. 

Property values 

Although Sydney’s monthly pace of growth eased in October, house prices in the NSW capital are straying further and further away from first-time home buyer’s reach. 

According to the latest data released by CoreLogic, dwelling values in Sydney rose by 1.5  per cent for the month, slightly easing from the 1.9 per cent recorded in September and below the 3.7 per cent record high notched in March 2021.

The NSW capital remains as one of the frontrunners in terms of annual capital growth. Sydney posted a year-on-year increase of 25.23 per cent. Hobart, which was previously second to the NSW capital, now leads the pack with 28.06 per cent. 

The recent price gains mean the average dwelling value of a property in the city now stands at $1,071,709, around $15,000 more than it did last month. Like in September, Sydney is the only Australian capital city in the million-dollar club in terms of median dwelling prices.

Sydney’s housing market posted a 1.6 per cent monthly increase in October, easing from the previous month’s 1.9 per cent. The median value of houses in the NSW capital currently stands at a staggering $1,333,767. 

Meanwhile, the city’s unit market saw a 1.2 per cent gain during the month, easing from the previous month’s 1.5 per cent. Currently, units in Sydney have a median price of $837,262.

Generally, unit markets have continued to record a lower rate of growth relative to houses, with this trend most noticeable in the annual results. Over the year, Sydney house values are up a stunning 30.4 per cent compared to a 13.6 per cent rise in unit values. 

But because of the skyrocketing house prices, experts are expecting a shift towards units as buyers adjust their goalposts.

Mr Lawless explained, “from a geographic perspective, it was the smaller capital cities that led the housing market out of the COVID slump, but now Sydney has risen through the ranks to record the largest capital gain over the past three months with values up 9.3 per cent.” 

“As housing becomes less affordable, we expect to see more demand deflected towards the higher-density sectors of the market, especially in Sydney where the gap between the median house and unit value is now close to $500,000,” he said.

He also highlighted that with the international borders now opening, it’s likely investor activity will continue to rise, a trend that would further prop up the city’s struggling inner-city unit precincts. 

Supply and demand  

Total property listings in Sydney surged in October, as vendors flocked back into the market as the city’s COVID-induced lockdowns ended and before the higher mortgage buffer bites into demand. 

According to SQM Research, total residential listings surged by 25.5 per cent in Sydney during October to 29,183 – the largest monthly percentage increase on record. 

Despite the monthly increase in stocks, property listings are trending downwards annually. Compared to 12 months ago, listings in the city remain down 14.3 per cent from 34,061 in October 2020.   

Commenting on the monthly figures, SQM Research managing director Louis Christopher said October was traditionally a strong month for listings. He also attributed the increase in stocks predominantly to the opening of Sydney and Melbourne from lockdown. 

However, he also argued that vendors could also be looking to exit the market before any further slowdown. 

“This could be an indicator that sellers are looking to get out of the market before further macro-prudential tightening kicks in and before we get an interest rate rise,” he said.

“I think buyer demand is still relatively strong, but perhaps it’s starting to come off a little, so if we were to see November recording a similar level of listings, then I would be a little bit concerned.”

Mr Christopher said with increasing speculation about future interest rate rises and the higher mortgage buffer by APRA, a growing number of vendors may be thinking now is a good time to sell.

“If we see similar strong listing activity in November, it will test the absorption rates and may point to a peak in the housing market,” he said.

CoreLogic also acknowledged the increase in property listings, albeit from an extremely low base, flagging “persistently low levels of housing inventory” have created an extended period of “extremely strong selling conditions”, and that’s evident in the high auction clearance rates and minimal days on market being seen at present.  

However, as new listings begin to trend sharply higher throughout spring, CoreLogic said the conditions are gradually starting to change.

Mr Lawless explains that “more listings mean more choice for buyers and less urgency in their purchasing decisions”.

He adds that, while FOMO will remain as long as total stock is low, it’s likely that “advertised supply will rise further through spring and early summer which, due to worsening housing affordability and a subtle tightening in credit availability, may not be met by a commensurate lift in demand”.

He added that while metrics are showing that it is still a seller’s market, conditions may begin to be more in favour of buyers late in 2021 or in early 2022. 

Ray White chief economist Nerida Conisbee reiterated this observation. She said the proportion of homes their agents were authorised to sell but have not yet been listed on the market has also increased.

“Listing authorities have been higher in the past four weeks compared to the previous four weeks, so that would suggest that we are going to see a further uptick in the volume of properties for sale,” she said.

On the demand side, Ms Conisbee said the reopening of international travels for vaccinated Australians could shift buyer demand in the months ahead.

“We know that the high savings rate was one of the reasons that has driven the rapid price growth,” she said.

“Now that people can travel, I think it will lead to less savings, and this will impact the amount people can spend to buy a home and potentially impact demand.”

Auction rates 

Throughout October, Sydney saw some of its busiest auction weeks since March due to the high volumes of properties being put under the hammer. However, the high number of auctions being held across the city is not exactly translating into sales. 

In its latest auction report, CoreLogic said that weekly auction volumes have risen by almost 50 per cent since restrictions were lifted on 11 October. However, over the same period, clearance rates have steadily declined, and the withdrawal rate has risen. 

A recent surge in listings following the easing of restrictions that allowed one-on-one inspections to resume has given buyers more choice and has resulted in more properties being passed-in, according to experts. 

Ray White NSW chief auctioneer Alex Pattaro said most vendors in Sydney were being realistic and pricing their properties according to what buyers were willing to pay. But in some instances, they may be overstretching it. 

“If a property is not selling when there’s lots of competition at auction, then it has been priced too high,” Mr Pattaro said. “Buyers are prepared to stretch, but they think ‘I’ve already gone so far over [the sale price] I’m not going to go that extra little bit’.”

Experts expect the trend of declining clearance rates is likely to continue to decline in the near future as pent up supply continues to flow to the market and provide more options to buyers, consequently removing their FOMO. 

If you want to be in the know about Australia’s auction market, follow our weekly updates in our News section. 

Rental market 

CoreLogic’s data showed that Sydney’s rental market continued to rebound in October, albeit at a slower pace. The NSW capital leads capital cities in terms of quarterly rent gains, recording a 2.4 per cent increase over the last three months. 

On an annual basis, both house and unit rents rose by 9.9 per cent and 5.8 per cent, respectively. 

Meanwhile, gross rental yields have continued to diminish in October, falling to a record-low nationally of 3.27 per cent. Sydney fell behind its capital city peers, showing the lowest rental returns of 2.44 per cent due to lower rental growth relative to a high rate of capital gain.

To have a deeper look into the country’s rental market, check out our latest report on rental prices and where are the most expensive (and affordable) suburbs to rent in across Australia’s capital cities. 

Vacancy rates 

The easing of lockdown in Sydney by mid-October caused a shift in the NSW capital’s rental market. Domain data showed that Sydney’s vacancy rates fell from 2.5 in September to 2.2 per cent in October, the first decline after two months.

This also follows months of a steady decline from a peak of 2.9 per cent in March this year and takes the vacancy rate to the lowest level since May 2018. 

Despite the city still being ’in favour’ of tenants, Domain predicts Sydney will be a “landlord’s city” soon. 

As the economy opens more broadly, there will be further downward pressure on the national vacancy rate in the coming months, as tenants face a positive outlook of fewer lockdowns and a greater sense of job security and interstate travel resumes, according to Domain. 

Domain explained this means upward pressure on asking rents and better rental yields moving forward for landlords, forecasting Sydney will soon follow the trend towards a landlord market.

The areas with the highest vacancy rate in October were Sydney inner city (3.2 per cent), Parramatta (3.2 per cent), Canterbury (3.1 per cent), Ku-ring-gai (3.1 per cent) and Strathfield – Burwood – Ashfield (3 per cent).

Meanwhile, the areas with the lowest vacancy rates were Richmond – Windsor (0.2 per cent), Blue Mountains (0.3 per cent), Sutherland – Menai – Heathcote (0.3 per cent), Wyong (0.4 per cent) and Camden (0.4 per cent). 

What’s next for Sydney’s property market? 

While Sydney’s growth remains at an above-average level, market observers are seeing several headwinds blowing the property market’s way. 

Sydney’s growth will continue till the end of the year, but there are signs that the city’s property market will continue to see a downward trend in its pace, experts predict. 

Among the factors seen to weigh down on the market are the influx of listings, increasing affordability pressures, and tighter credit conditions, which they say are likely to dampen buyer demand. 

A surge in supply leading up to the end of the year (brought on by lockdowns being lifted and international borders reopening) is also seen to offer more choices for buyers and consequently cool prices, according to CoreLogic.

But it’s not all doom and gloom for the NSW capital. A new analysis by Finder predicts Sydney’s house prices to rise by another $102,000 in 2022, as low-interest rates along with international travel resuming are seen to sustain the city’s price growth streak for another year.

Head of consumer research at Finder Graham Cooke said the current price surge was being powered by both owner-occupiers and local investors.

“The opening of international borders, and the return of potential overseas investors, may well refuel the market even further,” Mr Cooke said.

If you want to learn more about the latest industry expert insights on the property market, check out our amazing podcasts. Also, make sure to check our News Section for the latest property market reports, insights, news and useful tips and strategies for investors. 

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